How to Come Back from a Failed Outsourcing Partnership

By Outsourcing Center

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Every year, there are buyers who designate excellent connections that follow on the heels of those buyers' unsuccessful relationships with preceding service providers.

The buyers point to three primary areas of difficulty as being responsible for the failure of the relationships:

  • Trust - The buyer's early confidence in the provider diminished as the relationship progressed because the provider either failed to deliver on some of the promises it made to the buyer or handled some unclear contract terms transparently and honestly.
  • Money - The buyer had the idea that the service provider overcharged the customer at every opportunity, or the buyer was unsatisfied with the number of employees provided.
  • Flexibility - The service provider eventually stopped responding to the customer's evolving requirements.

The Outsourcing Center advises that failing outsourcing relationships could be a significant obstacle for buyer businesses to overcome before beginning the search for a new supplier. Unless they understand what caused the relationship to go south and cure that underlying issue, they will merely hatch a new problem by over-treating the symptom in the new relationship.

Let’s take the scenario of a buyer claiming that the previous supplier was constantly moving competent personnel from the operations and replaced them with untrained novices. The buyer wanted the new service provider to include a condition in the contract stating that all employees must stay on the account for three years and cannot be let go without the buyer's consent. However, the underlying motivation for the first provider's employment plan is not considered by this contractual restriction on the second provider.

The buyer didn't comprehend that the parties designed the initial connection as a very low-margin agreement for the provider to achieve the buyer's cost aim. Because the best individuals tend to receive the greatest wages, the provider had to eliminate these employees and replace them with lower-salaried, inexperienced workers to break even or make a profit. Buyers can prevent similar patterns of failure in a new flavor by focusing on the root causes of the problems rather than the symptoms.

Don't Hide the Failure

An important rule of thumb is for the buyer to explain to the new supplier (or providers, in the case of a competitive bid) that it has recently ended a failed relationship and to provide details about what the buyer thinks led to the breakdown. Seek advice and assistance from the service providers to avoid engaging in such conduct. Open communication and honesty are key to a healthy and productive relationship. Failure to communicate is a leading cause of lost partnerships, which more often is due to a lack of communication than poor SLA scores.

An impartial third party's help in gaining the buyer's early confidence in a provider can also be crucial to the transition's success, as would be any incumbent provider's (or the buyer’s) readiness to support knowledge transfer. Having a contract that allows for adaptability means that users won't be penalized for the inevitable evolution of their needs. It is important for the buyer to seek the advice of an impartial third party to do a "partnership checkup or soul-searching evaluation of the buyer's participation in the failed partnership and address the behavior or mindset root of those difficulties with the new supplier. The buyer is responsible for assessing the degree to which its actions throughout the partnership or when first establishing the connection caused problems for the supplier that could not be resolved.

After a failed outsourcing contract, the buyer frequently wonders whether it is suitable for BPO. The new provider has a responsibility to ensure that the parties identify the root causes of the previous failure and that the issue is communicated to the hurt parties in the previous relationship. The argument is that it is not enough to just take note of the "often missed" performance items; rather, they must explore the underlying structural causes of these issues, such as the provider's loss of scale.

The C-suite often blames the buyer for the failure, while the end users and business executives are unaware of the relationship's termination and the bad performance. Their outlook and ignorance of the issues' origins will impact their perception of the new outsourced partnership. The services provider and the client's executives must explain to the end-user community why the new outsourcing engagement is worthwhile, the specific benefits, and what procedures must be followed to realize those benefits.

Starting Off on the Right Foot

Some buyers realize that the relationship had not been previously equipped with an efficient governance structure. The parties should conduct an in-depth review of the deal's business fundamentals to ensure that the finances of the delivery of services (and not simply the contract terms) are sustainable over the long term. One of the most important considerations is whether the buyer would truly enable the supplier to drive process optimization to improve the quality and efficiency of service delivery.

It may also be required to make technological choices that impact the customer and the entire cost structure. Instead of narrow factions inside the client company, those responsible for the contract must take a strategic approach to address these issues. The parties involved in the relationship need to review the condition of the relationship so that they will not allow things to go too far. Additionally, the provider and the buyer should take the time to define the specific levels of service that will impact the buying company and the success of the project.

Mind-set the Second Time Around

Almost all returned buyers who had previously experienced relationship failure provided a similar explanation for why their second attempts were more successful: In relationships where such understandings and good communication methods are established from the outset, they have reasonable expectations and maintain a relationship that is advantageous to both parties, they will be able to get over practically any problems or imbalances in the contract (i.e., service levels that are too tight, or service descriptions or statements of work that are too vague or too specific). As a result of the fact that they are now in a partnership with one another, they are in a position to recognize any errors they may have committed throughout the negotiating process and make any necessary adjustments."

If the parties adopt a combative stance against one another throughout the formation stage, any effort at maintaining a partnership of this kind would ultimately be unsuccessful.

In summary, you should begin the outsourcing process to establish a relationship based on trust and objectives that are advantageous to both parties and a highly effective governance mechanism that promotes discussion, visibility, and the realignment of interests. Otherwise, the relationship's health will deteriorate, and the contract will not be renewed except in the most austere of circumstances.

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